[Recorded by Electronic Apparatus]
Tuesday, December 10, 1996
.1536 
[Translation]
The Vice-Chairman (Mr. Paradis): Pursuant to Standing Order 108(3)(d) the committee will now consider Chapter 33 of the November 1996 Report of the Auditor General of Canada on Indian and Northern Affairs Canada and on funding arrangements for First Nations.
We are pleased to have with us today the Auditor General of Canada, Mr. Denis Desautels.Mr. Desautels is accompanied by Mr. Grant Wilson, Principal of Audit Operations. We also have with us the Deputy Minister of the Department of Indian Affairs and Northern Development Canada, Mr. Scott Serson, the Assistant Deputy Minister, Mr. Brent DiBartolo, and the Director General of the Finance Branch, Mr. Bill Austin. Welcome.
I would now ask the Auditor General to present his brief.
Mr. L. Denis Desautels (Auditor General of Canada): Thank you very much, Mr. Chairman, and thank you for the invitation to discuss with the committee our audit of funding arrangements between Indian and Northern Affairs and First Nations.
The last time we met with this Committee to discuss issues relating to Indian and Northern Affairs was in 1992. At that time, we commented on accountability issues, as well as other matters raised in our 1991 report. Over the years, we have reported on audits of capital facilities and maintenance on-reserve, in 1995, social assistance to Indians living on reserves, in 1994, non-insured health benefits for aboriginals, in 1993, and the Canadian Aboriginal Economic Development Strategy, also in 1993.
Our most recent work prior to this chapter related to our study of accountability practices from the perspective of First Nations. That was chapter 13 of our 1996 report. So, it gives me great pleasure to appear before you when aboriginal issues are very topical given the recent tabling of the Report of the Royal Commission on Aboriginal Peoples.
There are over 680 First Nations and tribal councils that are served through funding arrangements that affect over 300,000 registered Indians. Seventy-five per cent of these First Nations consist of less than 1,000 registered members and 50% have fewer than 500 members.
Approximately two thirds of First Nations communities are located in rural, remote or special access areas throughout Canada; the other communities are located in urban areas. In addition to size and location, First Nations differ from one another in many ways, including their preparedness to resolve outstanding issues with the Department, to assume responsibility for program delivery and, ultimately, to implement the inherent right to self-government. Consequently, solutions to given issues may not be appropriate to all First Nations, nor may the issues themselves necessarily apply universally.
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[English]
As many Canadians know, the relationship between the Government of Canada and first nations is sensitive and complex. Funding arrangements are an important part of this relationship. These arrangements are the mechanism by which the department formalizes its financial and accountability relationship with first nations. Their design and implementation impacts strongly on the success of programs and ultimately on the standard of living of the recipients.
In recent years budgetary expenditures of Indian and Northern Affairs have averaged over $4 billion annually. About $3 billion is directly administered and spent by first nations, tribal councils and other recipients. At one time the department directly managed the delivery of numerous programs in Indian communities. In 1986-87, for example, approximately 65% of expenditures were administered by bands. However, the delivery has now devolved significantly to first nations, with over 80% of expenditures administered by first nations today.
Funds are transferred from the department to recipients through funding contracts under various arrangements. These funds are used for education, social assistance, infrastructure development and other needs, mainly on reserves.
Currently the department uses up to six types of funding arrangements or components thereof, which have evolved over the last ten years. Most of these instruments are forms of contribution agreements containing various terms and conditions relating to such things as government program standards, reporting requirements, conditions relating to funding services and shortfalls, and so on.
Our main objective in this audit was to determine whether or not existing and planned funding arrangements and their implementation are appropriate in terms of the evolving relationship between the federal government and first nations. The audit disclosed various opportunities for improvement in three general areas: risk management, implementation, and accountability of funding arrangements.
[Translation]
Funding arrangements used by the Department need to mitigate the relative risks associated with the type of arrangement selected and the funding recipient. For example, assessments to match selected funding arrangements to specific recipient needs were not required for all recipients. Where they were required, they were either not always available for review or were not updated to reflect changes in the circumstances. This means that the risk of implementing inappropriate funding arrangements increases.
We are concerned that almost one third of First Nations and tribal councils are in deficit positions. This means that in addition to other differentiating factors, their needs are different from those who are financially strong.
More than three years ago, the Department identified the need to improve existing funding arrangements to achieve several benefits, including the reduction of First Nations dependency, better value for money and a strengthening of accountability. The result is the Department's current initiative to implement a new Financial Transfer Arrangement to replace all existing arrangements by 1998-99.
It is in this context that we have raised the observations that are before you. While the audit chapter contains many issues pertaining to funding arrangements that have been in use for many years, such issues reflect implications for the future.
We are not advocating the use of any specific funding arrangement, nor are we suggesting that the Department's current initiative to implement the new Financial Transfer Arrangement is inappropriate. We also do not believe that a recipe exists for a perfect funding arrangement for all occasions and purposes.
Instead, we have reported issues that will need to be resolved notwithstanding the type of instrument used or planned. In this regard, among our observations is the ongoing issue of accountability - a difficult challenge to all parties.
In 1991, we reported that the Department's funding arrangements lacked adequate accountability. The consequences included inadequate assurance that funds provided to First Nations were being spent for the purposes intended, with appropriate results.
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[English]
Basic questions still need to be answered jointly between the department and first nations regarding the nature and extent of accountability. For example, who is accountable and to whom? What are they accountable for? And how should the implementation of accountability mechanisms be tailored to meet the different needs of first nations?
In September 1996, as I stated earlier, we reported the results of our study of accountability practices from the perspective of some first nations. We noted that participants in the study strongly emphasize a two-way perspective as an essential ingredient of accountability among partners or equals.
We believe there should be a recognition that effective accountability must serve many parties, including Parliament, the department, first nations representatives and first nations members. Effective accountability is predicated on the agreement of both the funding provider and the funding recipient.
As well, significant differences among the 680 first nations and tribal councils must be taken into account. These include their relative size, location, and willingness and ability to deliver cost-effective programs to their members.
Our report raises several questions on accountability but does not prescribe what the accountability should be for each circumstance. These are matters to be resolved among the parties to the funding arrangements. In addition, up to 65% of funding arrangements in use are of the more restrictive type. This has occurred during a ten-year period, when less restrictive arrangements were available to qualified recipients who were willing to assume additional financial risk.
This will suggest that there is a considerable way to go in achieving the intended benefits of the new less restrictive financial transfer arrangement. The department will need to respond to the different accountability needs, capabilities and priorities of different first nations and tribal councils.
Some questions come to mind that the department, together with first nations, should be prepared to address. First, how will the new funding arrangement address the problems of accountability, risk management and implementation that exist in current arrangements?
Secondly, how will funding arrangements be tailored to the different circumstances of the capacity or willingness of first nations to ensure their appropriateness in meeting the diverse needs of first nations?
Thirdly, how will the department achieve its goal of introducing all first nations to the new funding arrangements during the next two fiscal years, when most arrangements currently in use are more restrictive? What assurances are there that the department will achieve its goal with the appropriate results?
We believe that sound, appropriate funding arrangements will be critical to the success of the evolving relationship between first nations and the federal government. We agree with the department in its response to our audit. There are many challenges facing the department as its relationship with first nations evolves. It must respond to the different circumstances of first nations while ensuring that requirements of accountability and cost effectiveness are observed.
[Translation]
We would encourage the Department to ensure that the implementation of future arrangements appropriately addresses the levels of risk related to capacity and willingness of First Nations recipients and reflects appropriate accountability for all parties. Moreover, we believe that the Department can and should implement, together with First Nations, funding arrangements that will help achieve their stated objectives while taking the needs of all parties into account.
Thank you. We will be happy to respond to your questions.
The Vice-Chairman (Mr. Paradis): Thank you very much, Mr. Desautels.
[English]
We will now ask the Deputy Minister of the Department of Indian Affairs and Northern Development to proceed with his presentation.
[Translation]
Mr. Scott Serson (Deputy Minister, Department of Indian Affairs and Northern Development): Thank you for the opportunity to speak to you about the Auditor General's report on funding arrangements with First Nations, and the progress we have made in partnership with First Nations and Inuit communities.
My comments today will focus on the following: the changing relationship with the First Nations; what we have achieved in the area of accountability; and our current direction for improving funding arrangements.
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[English]
Self-government is the cornerstone of our relationship with aboriginal peoples, and we are making strides towards that goal. As you are aware, DIAND funds essential services such as education, social services, housing and community infrastructure for first nations in Inuit communities. Elsewhere in the country these services are provided by provincial and municipal governments.
As recently as 20 years ago, these services were delivered directly on reserves by federal civil servants who taught schools, who planned and implemented water and sewer projects, and who managed social development programs. Today, virtually all these programs and services are delivered by aboriginal governments. Clearly we have undergone a significant transition.
At the same time, basic living conditions in first nations communities have traditionally lagged behind those of other Canadians. So while we are collectively working towards self-government, we are also trying to give a solid foundation by improving living conditions.
[Translation]
Progress has been made, however, much remains to be done. That is why, in the last federal budget, Indian programming received modest growth for a three-year period. Spending will increase by 3% this fiscal year, and by 2% in each of the next two fiscal years. Challenges will be even greater as the First Nations population is growing at two-and-a-half times the Canadian average.
This tight fiscal framework has increased the need for both us and our First Nations partners to carefully look at our fiscal responsibilities and how best to manage funds. At the same time, we need to consider the varying needs of First Nations as they move toward self-government.
[English]
The Auditor General noted that DIAND has used a number of different funding arrangements in recent years. In many ways those arrangements reflect our changing relationship with first nations. As the Royal Commission on Aboriginal Peoples has stated most articulately, aboriginal governments must have flexibility and authority to address the needs of their communities. At the same time, accountability and value for money must be assured at all levels.
We share this view. That is why our funding arrangements cannot be viewed in isolation but must be considered within the broader accountability framework.
The Office of the Auditor General has played a key role in helping to define what is an appropriate accountability for transfer payments to aboriginal governments. As the Auditor General mentioned, the chapter on this subject in his September report to Parliament and his work with first nations in developing that study is particularly helpful. As a result of effective cooperation, we are now striking the right balance in the federal government's relationships with first nations.
Let me describe briefly our overall accountability framework. First nations are expected to conduct their affairs in accordance with principles common to all governments in Canada: transparency, disclosure and redress. They are intended to ensure the accountability of first nations leaders to their communities. In practice, every first nation, every Inuit community and every tribal council funded by DIAND are currently required to assess their management and accountability system so that communities have complete information on how their governments operate.
Where any gaps are identified, the terms and conditions of funding arrangements require an action plan to strengthen management controls and accountability. We recognize, however, that the minister is accountable to Parliament for the use of public funds. First nations chiefs and councils are therefore accountable to the minister for these funds. The department has taken measures to ensure this accountability.
[Translation]
First, funding arrangements require that First Nations prepare annual audits and performance reports for disclosure both to community members and to DIAND.
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As the charts in your handouts show, First Nations are providing virtually all of these audits, increasingly on time, and more and more of their auditors' opinions are unqualified. This shows a substantial improvement in First Nations' management and financial accounting.
There has been real improvement in compliance with the terms and conditions of First Nations' agreements. Funding arrangements are now monitored more closely.
[English]
The department has also strengthened its monitoring of first nations' use of debt. Recipient audits are reviewed by regional audit committees and feedback is provided for first nations. The majority of first nations are handling their finances effectively.
When there are debt problems, a remedial management plan is developed to establish the action required, to permit the monitoring of progress and the enforcement of compliance. Most first nations requiring remedial action manage the process themselves.
Accountability is a two-way street, however. As a department, we continually evaluate our management of funding arrangements - first nations contribute directly. As a result, we are fully aware of the issues raised by the Auditor General in the report on funding arrangements. We have already taken measures to address most of the report's recommendations.
We are working hard at implementing the management and accountability assessment process. We are clarifying accountability responsibilities and expectations for all arrangements, reviewing reporting requirements, evaluating funding arrangements and reviewing first nations comments. We are involved in the continuous improvement of databases and information sharing, and we work with other government departments to better coordinate funding.
Moreover, I would suggest that great strides have been taken in terms of overall openness, transparency and accountability at a much broader level.
[Translation]
That is why Minister Irwin shared the department's Business Plan with our partners and the public and why we participated in the Government's pilot project to enhance reporting to Parliament.
[English]
Our first stand-alone performance report was tabled in the House on October 31, 1996. It has been shared with our partners and made available publicly on the Internet.
[Translation]
We're also supporting First Nations to strengthen capacities by assessing needs and ensuring they have access to resources for skills development and training.
[English]
Each year $16 million is invested in partnerships to develop first nations capacity. For example, in British Columbia a partnership effort has resulted in the creation of an Aboriginal Finance Officers' Association, and there are plans for a national aboriginal comptrollers' association.
As well, tribal councils are providing advisory services to first nations on financial management and governance. Training is delivered by a host of aboriginal private and non-profit organizations.
Finally, DIAND spends $260 million a year for about 26,000 students enrolled in post-secondary studies - a critical investment in human resource capacity for aboriginal communities.
I believe the improved accountability is one of the good news stories of the first nations departmental partnerships, as we continue to take practical steps towards self-government.
I want to say a few words about how the financial transfer arrangement contributes to this. The financial transfer arrangement represents the most advanced type of funding arrangement possible under the Indian Act. The arrangement is currently under development. It has been designed and tested through a variety of voluntary pilot projects with first nations.
To date, 30 first nations and 6 tribal councils, representing an additional 42 first nations, have participated in pilot projects. In an ongoing evaluation of these projects, participating first nations have reported their overall satisfaction with these arrangements. One community leader said the financial transfer arrangement provides the flexibility to transfer money and design new programs. We believe this is empowerment.
.1600
The financial transfer arrangement combined the flexibility of block funding with an enhanced accountability regime. Under these agreements, first nations have greater corporate control over decision-making to address community needs and priorities. We feel these decisions are best made by first nations governments. In our view, they are the most effective means of ensuring value for money for the federal contribution towards essential programs and services on reserve.
At the same time, reporting requirements are being streamlined and increasingly oriented towards accountability for results. It is a challenge to move from an accountability regime based on line-by-line reporting to a results-based system, but we are moving in this direction in consultation with first nations and Inuit communities.
We plan to continue piloting financial transfer arrangements over the coming year, and discussions are under way with an additional 22 first nations. We are still very much at the testing stage to see what does and doesn't work in real situations. We want to develop the best possible agreements that will reflect the diverse needs of first nations.
To conclude, I want to emphasize that the real success story is the new responsibilities and accountability first nations have assumed over the past two decades. The department has adapted and evolved to meet first nations' aspirations and needs. This process will continue. As members of this committee will recognize, a certain level of risk and some trial and error must be incurred by all parties as the process of change progresses.
Again, I would like to thank the Auditor General for his ongoing contribution to building the new relationship with first nations and Inuit communities.
Merci, monsieur le président.
The Acting Chairman (Mr. Grose): Thank you, Mr. Serson.
As all of the members here know, this is my first experience chairing this committee. I've found in my long life that one usually gets lucky the first time one tries something. It's the second time around, when you think you know it all, that you get into trouble. So if you could bear with me I would appreciate it.
To start the questioning, the first ten-minute round belongs to Monsieur Rocheleau.
[Translation]
Mr. Rocheleau (Trois-Rivières): My question is about the new type of financing and the financial transfer arrangement, the FTA, which, I believe, involves a part of the $4.5 billion that the Department of Indian Affairs spends out of the $6 billion the Government of Canada reserves for Aboriginals in Canada.
It says in the report that there are 17 pilot projects currently underway. I would like you to tell us a little about the current situation. First, does the department have anything in writing about your assessment of these 17 pilot projects?
[English]
Mr. Brent DiBartolo (Assistant Deputy Minister, Corporate Services, Department of Indian Affairs and Northern Development): In answer to your question, we are in the process now of doing an evaluation of the experiences of first nations in terms of a formal evaluation. We have a draft document that has to be finalized. Our practice is to release all evaluation reports when they're finalized. I'll undertake to provide members - or you personally, Mr. Chairman - with a copy once we've reached that stage.
We are learning through our pilot projects. As the Auditor General notes, we have to ensure that we tailor our funding arrangements to meet the varying needs of first nations. That's precisely why we're using the pilot project approach. The Auditor General reports in his chapter that first nations that are currently under FTAs generally feel they meet their needs. That's our experience.
So we're looking at each pilot as they develop. We're in the process of negotiating additional pilots with first nations now, and using the experience as we progress.
[Translation]
Mr. Rocheleau: You seem to foresee signing an agreement with all First Nations by 1998-99. There are still about another 600 to come. Is it realistic to think that you will be able to reach an agreement with 600 First Nations in such a short time?
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[English]
Mr. Serson: I think it's unlikely. We set the goal to challenge ourselves to do the work, but we're recognizing that it's going to be much tougher than we'd originally thought. That's not necessarily solely related to the instrument, the financial transfer agreement. It's also related to the environment in which we find ourselves.
If you look at the handouts we've provided you'll see the decrease in the level of growth that the program is receiving these days. That becomes an important factor for our first nations partners as they begin to measure whether they want to be part of this agreement. They're asking questions about the benefit for them.
We're talking about a block-funded approach that is going to be at the same level of growth we're receiving, 2%. They have to measure whether they want that additional flexibility to move money to their priority areas or whether they would prefer to stay with one of the existing arrangements where they might get a level of growth that is more reflective of, say, the growth in their population.
All of that is factoring into the discussions with first nations.
[Translation]
Mr. Rocheleau: Could you explain how that may - we hope it will - alleviate current problems with respect to accountability, risk management and implementing new funding methods? How will it improve the current situation? What will change and what has changed that would lead us to believe that it will improve?
[English]
Mr. Bill Austin (Director General, Finance Branch, Corporate Services, Department of Indian Affairs and Northern Development): Over the last couple of years we've been doing quite a bit of work with first nations. First nations have embraced a lot of change. For example, we strengthened our monitoring of existing terms and conditions of existing agreements in areas such as elementary education or social assistance, these types of areas.
We're also doing a considerable amount of work checking data quality. For example, a lot of funding mechanisms require the completion of a nominal roll, which you would find in any public school or any grade school for funding purposes. We're working with first nations to ensure that the data exchanged between the department and the first nation is of the highest-possible quality. We're also looking at various training mechanisms to try to increase the capacity of first nations in conjunction with them, as the deputy mentioned a few moments ago.
We have introduced a management assessment activity right across all first nations that looks at a number of different things such as human resource policy, financial policy, administrative procedures - these types of things - that tries to assess the first nation's capacity, and that builds, where there are certain weaknesses, a development plan that can be built into the funding arrangements, the terms and conditions.
We have also done a considerable amount of work with first nations concerning audits. Each region now has an audit committee. All first nations are required, as you know, to provide audits on a timely basis. You've seen the graphs enclosed in the deputy's speech whereby they are providing them in a more timely fashion. I think that's a direct indicator of the change in capacity that has taken place, particularly over the last two or three years.
We're providing feedback to first nations on those audits. We have an internal deadline of trying to get initial feedback to first nations, on receipt of their audit, within 30 days. The audit review committee will give a tertiary response, or scan the audit report to see if there are any major problems, and then they'll do an in-depth analysis and provide feedback to the first nation on that audited statement. Where there are problems, a remedial action plan or a financial management plan will be built, which will specify quite concretely who is going to do what, when, etc., to try to ameliorate the financial well-being of the first nation.
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We've worked in a number of areas with the Ministry of the Solicitor General, when letters come in or accusations are made by members of a community, to ensure that anything inappropriate is followed up by the local police force or whatever.
So all in all, we've made a number of important changes over the last three or four years, and we're starting to see the results of those.
The Acting Chairman (Mr. Grose): Mr. Rocheleau, you have one minute.
[Translation]
Mr. Rocheleau: Are there any First Nations or First Nations leaders who absolutely refuse to co-operate with the federal government in terms of accountability, in terms of explaining how they use public funds? If so, do you have the authority to intervene and restore order? Can you undertake sanctions? How far can you go? I don't think that you would go as far as cutting them off. Would that be possible? How far can you go?
[English]
Mr. Austin: That's an interesting question.
To my knowledge there are no first nations that are not interested in improving accountability. Let me state that at the beginning. We have some disputes about how accountability - particularly transparency, disclosure and redress - might manifest itself at the community level.
For example, we require all first nations to provide audits. That's a simple indicator. We require them to provide those to their community members. And we're getting those audits, or the majority of those audits, and by ``majority'' I mean over 99%. So we're improving greatly on that.
The Acting Chairman (Mr. Grose): Thank you.
The next questioner will be Mr. Silye.
I understand you want to share your time with Mr. Duncan. When you're finished, if you'd just pass off to Mr. Duncan, we'll keep the thing flowing.
Mr. Silye (Calgary Centre): Thank you, Mr. Chairman.
I'd just like the committee to know that the current Deputy Minister of the Department of Indian and Northern Affairs is a tough guy. We were on the same football team together one year and we won a championship. He's quite a tough guy, so you have to be careful. That's all I want to say.
Having said that, I want to turn it over to another tough guy, John Duncan.
Mr. Duncan (North Island - Powell River): What an introduction.
My first questions, Mr. Chair, are to the Auditor General, and then I have some other questions for the department.
In terms of the conceptual set of questions, the Auditor General spends a lot of time on his concerns about value for money.
I know I'm putting you in a difficult spot here, but would it be fair to say that from the AG's perspective, there's a lower current standard of accountability to Parliament and the public for DIAND than there is for other federal departments?
Adding to that, could you sum up for the committee, in just a few sentences, what the AG's mandate is for DIAND expenditures and how it differs from other departments?
Thirdly, could you express an opinion as to whether or not the AG would welcome a new mandate from government for DIAND?
Mr. Desautels: Mr. Chairman, I'll try to answer all three questions relatively quickly and directly.
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I believe the first question dealt with whether or not there is a lower standard of accountability for DIAND expenditures as opposed to other government departments. I believe Mr. Duncan related that to his concerns on value for money.
First of all, value for money and accountability are directly linked. You require accountability in order to ensure that you receive value for money for government expenditures.
I believe the standards of accountability for this particular department should be exactly the same as for any other department. However, we have one difficulty in the sense that it is a more complex accountability relationship.
In other departments as well we have complex accountability relationships, and this happens usually when you have a number of parties involved in the particular arrangement. In this case we have accountability expectations of DIAND, but there are other parties involved in this relationship.
Let's look at CIDA as an example. It's dealing with other partners in the implementation of its programs, so it's quite complex, in some of those situations, to extract an accountability similar to that when you have a very direct relationship with the department concerned.
To answer your question, we should have the same standard of accountability, but we should also recognize it's more complex and more difficult to achieve when you have this kind of partnership arrangement.
The second question dealt with our mandate vis-à-vis DIAND. Our mandate vis-à-vis DIAND is the same as our mandate vis-à-vis other government departments. I believe the concern Mr. Duncan may have is whether or not that mandate extends to auditing the flow of funds all the way to their ultimate destinations within the native communities. Our mandate does not extend to auditing the native communities themselves. Our mandate stops at the point where a transfer of funds is made by DIAND to a native community.
The third question was would we welcome a change in our mandate? Well, we are at the service of Parliament, and it's for parliamentarians to decide if they would like us to go further. But of course you have to realize that Parliament has to be consistent in its treatment of first nations.
If the principle under which government is working is that we are evolving towards devolution and self-government, certain other principles flow from that, and that should be taken into account in deciding whether or not our mandate should extend to auditing activities of first nations themselves. But right now it does not include that. It would be up to members of Parliament to decide if they wish that to happen.
Mr. Duncan: Okay. Thank you.
Following up with the department, the department does have strong philosophical grounds upon which it operates. There's a school of thought that government has a strong fiduciary obligation - well, it's more than a school of thought - and there are two areas in which that fiduciary obligation, in many people's view, is falling down. They are the areas of democratic and financial accountability, which in my mind are not negotiable.
In the minds of some native leadership, the department has let the native community down by not demanding very exacting standards of accountability, particularly on the financial end.
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First, will DIAND have their act together on accountability prior to the 1997-98 fiscal year, and how? Second, would DIAND be open and receptive to increasing the mandate of the Auditor General to follow these transfers to their ultimate end in order to determine value for money?
The Acting Chairman (Mr. Grose): Mr. Duncan, you have a minute and a half, so you're in the hands of the witness.
Mr. Duncan: Right, and the rest of my questions I'll catch on the next round.
Mr. Serson: Mr. Duncan, you're posing a tough question to me. In the context that both I and the Auditor General have described, that is, an evolving relationship where we are continually in discussion with our first nation partner about the meaning of self-government and the nature of our relationship, I think we have our act pretty much together. In responding to Mr. Rocheleau, Bill has talked about the areas in which we are working to make improvements in accountability relationships. We're going to continue to try to improve and we're going to continue to discuss these issues with our first nations partners.
One of the things that bears upon the issue - and I think the Auditor General has had this experience - is that our first nations partners continue to compare what we demand of them with what we demand of other levels of government. They note, for instance, that we are making substantial transfers to the provinces without demanding a good deal of information about that. That is not where we are in our relationship with them, but these are the kinds of issues that come to the table when we get into discussions with them and we debate with them.
On the question of the role of the Auditor General, I see that more as a policy question than one that I can answer as manager of the department.
The Acting Chairman (Mr. Grose): Thank you, Mr. Serson.
Colleagues, I want to tell you that I do not believe chairmen should question witnesses unless testimony lags. It's your committee, so make of it what you will.
Our next questioner will be Mr. Crawford.
Yes, Mr. Crawford, I will cut you off.
Mr. Crawford (Kent): Thank you, Mr. Chairman.
Where do we start? Traditionally, basic living conditions in first nations communities have lagged behind those of Canadians. What did you have in mind for basic conditions?
Mr. Serson: You could take almost any socio-economic measure and you will find that first nations members are disadvantaged - level of employment, level of income, and level of basic health. There have been improvements over the last decade, but there is still work to be done.
Mr. Crawford: In reference to that, a few years ago our hospital did a restructuring where all of the municipalities were charged a certain percentage. The reservation was charged, but they had no money. It was around $250,000 for their share. So I got in contact with your department. They said they couldn't give them any money, yet they have unlimited money. The administrator of the band would have loved to have paid it, but the band said no. He sat on the hospital board knowing exactly where they stood, and the money was there. So I couldn't get any money out of your department. To this day they've never paid a penny, yet they're getting their hospitalization and service as well as anyone else. Under that part there is no hindrance.
Under education, they have schools as good as, if not better than, the ones in the immediate area. The arena is far beyond any arena that's in any municipality of 12,000 or 20,000 people.
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As to skills development, they had a tool and die shop built, for I forget how many hundreds of thousands, by your department. Then no one could run it. They let it go by the wayside.
I'm not downgrading them. I am their neighbour. I grew up with them. They're very well educated.
They needed a project...$620,000 or $640,000 several years ago. They sent me their brief the morning your department was looking it. I had a chance to only glance at it. I phoned them and said, ``My God, it's too good; you proved in your brief that you don't need one penny.'' In turn, they said, ``Tell them to hold off, because we have to send an addendum to it.'' The addendum tore apart everything they had in the original. Just like that, they got the $640,000. If you'd read the original, it would have proved they didn't need a penny.
Now, this is a well-off reservation. If you divide 2,800 into $10 million a year...and that is not welfare or anything. It's what they were receiving a year. Being the head of the municipality right next to them, I would love to have had $10 million to run a municipality that is 20 times bigger than that reservation.
An hon. member: [Inaudible - Editor]
Mr. Crawford: That's what we should have done. We had contemplated seeing if we could get our Indian band numbers.
How much money do we keep pouring in? This says 3% more this year and 2% next year.
No, my figures are wrong. I've lost them here.
Mr. Serson: The Auditor General said it's around $4 billion for the department. That would include northern affairs.
Mr. Crawford: As to education, I'd figured it out to be around $10,000. I would love to have had $10,000 when I had to send my children through school and university.
We had a census taken just this year. How is it we were under contract to do a job and yet they were under an hourly rate that ended up three, four, five, and ten times higher than a neighbour of mine would get?
You say we're going to balance. I wonder where we're going to balance. The money seems to be going and going, yet what are we getting for it? We're getting homes that are destroyed. On the Charlotte Islands I was looking at homes that had been built only a few short years ago before they were completely destroyed. How many times do we rebuild homes?
Now, many of my neighbours are well educated, university educated, and hard workers, but I think they're being hurt by the ones who don't care. Is it our fault?
After the war, when I was a child, servicemen who returned - and these were aboriginals - all of a sudden couldn't buy machinery to farm with. They had no credit. I'm blaming us for that. By the time they were allowed credit, the little 25- or 30-acre farms were not buyable. They had lost out where they could have expanded. So we're to blame.
I don't want to sound as though I'm negative toward them. I'm not. But I think we're throwing good money after bad. There has to be some way we can come to an understanding. You're saying with your accountability, your budgets, we are going to get there, but if I have an unlimited budget, I'm never going to get there.
Maybe I've thrown a lot of things at you now.
Scotty's liable to tackle me here, Jim.
Mr. Serson: Mr. Silye didn't mention the many times in the winter when he left me dangling over the boards on the hockey rink.
You've raised a lot of specific circumstances I can't comment on. The only thing I want to underline here when it comes to the overall growth in our budget is that first nations communities are experiencing a baby boom that is very similar to what we experienced after the war. That does take an investment to keep up with it.
There's no doubt we need to work with them to improve economic opportunities so that they can contribute to those needs themselves. But fundamentally, the factor driving our budget is simply population growth.
.1630
You commented on a number of relationships. In terms of the relationship with the hospital, of course that's the medical services branch at Health Canada. We have our own particular relationships. Sometimes we provide a school on reserve where we think the economies of scale can merit it. Otherwise, we enter into purchase of services with boards of education. We try, with the first nations, to be reasonable about the funds we're providing and hope they get a quality education.
Brent, is there anything else we could comment on?
Mr. DiBartolo: I guess the only thing I would add in terms of the baby boom on reserve is that what compounds the problems in terms of the DIAND budget is that a lot of the services we provide are services that would be provided by a provincial or municipal government in other locations. So the direct relationship of the baby boom and the pressures for housing, education, social assistance and infrastructure have direct impacts on our budget and our capacity to deliver.
Mr. Crawford: You brought up education, where there are subsidized lunches and everything. We have ones on the reservation who are taking their children to private schools. There are several private schools. By private, I mean public and private, such as a Roman Catholic private school. They're finding their children have the aptitude, they have the...but other kids are picking on them. So they send them off the reservation to try to get a better education. The teachers there are top-notch; it's the environment they're somehow trying to get around. I don't know how they can combat that.
Mr. Serson: Again, I can't comment on the individual case. Generally, from what I see in the statistics we're keeping, where a first nation takes over and runs its school, where children have the opportunity to get exposed to their first nation culture and their first nation language, first nations are doing a pretty good job at improving results, improving retention levels, in on-reserve schools.
Mr. Crawford: Thank you.
The Acting Chairman (Mr. Grose): Thank you, gentlemen.
We're into the five-minute round now, with Mr. Rocheleau.
[Translation]
Mr. Rocheleau: Mr. Deputy Minister, in your department's organizational culture, what does accountability mean? What does it mean for you, in your department?
[English]
Mr. Serson: You're asking me about the whole level of accountability and what that means to...?
[Translation]
Mr. Rocheleau: Yes, what does accountability mean to you?
[English]
Mr. Serson: I think in our world it means this type of situation, where we try to work with our first nations partners to convince them that the highest levels of accountability are necessary to withstand the scrutiny of the Canadian public for a budget that, as this member has mentioned, is growing at a time when few other budgets are growing.
We also work with them, however, to try to encourage them to recognize that the accountability we are asking them to participate in is also beneficial for their membership. I guess the ideal situation we look for is a lining up of accountability where a first nation is clearly providing the necessary accountability results to their community in the hope that one day there will be a lining up with that so that it is satisfactory to the minister and to Parliament at the same time.
.1635
[Translation]
Mr. Rocheleau: Mr. Auditor General, do you think that the use of this new method, the FTA, will deal with the concerns that you raise in paragraph 33.48 of your report? Will the Department of Indian Affairs and Northern Development Canada be able to answer the very relevant questions that you asked with this method?
Mr. Desautels: The new method has a certain amount of potential to solve the problems that we raised. Among other things, it will provide more flexibility in dealing with each First Nation according to its specific characteristics.
However, I must add that nothing is a given. The problems that we raised are real and, in many cases, they can be attributed to capacity. As we mentioned in our statistics, many First Nations are very small, with a population of less than 500 people, and we are asking them to be administrators, accountants, managers of social programs, health programs and construction programs. In fact, it is almost impossible for First Nations to play all these roles.
One point that has to be especially worked on - and I think that the department acknowledges this - is the development of First Nations' skills within the framework of these financial transfer arrangements. The arrangement itself won't solve the problem.
[English]
The Acting Chairman (Mr. Grose): Thank you, Mr. Desautels.
You have about three quarters of a minute. I'll be very tolerant on the next round, if you'd rather do that.
[Translation]
Mr. Rocheleau: It would be a supplementary question.
Do you think the department is able to answer the Auditor General's questions or do you think that the Auditor General is asking too much or going too far? Is it reasonable to put this type of questions given the complexity of the issue?
[English]
Mr. Serson: I'll let my colleagues who are closer to the action speak to it, but I don't think that any of the issues the Auditor General has raised are beyond our capacity to deal with. In fact, I think they are the questions we have to resolve as we move these agreements forward.
Do you disagree?
Mr. DiBartolo: They're very legitimate issues that are raised in the Auditor General's report, and his focus on accountability is certainly helpful to us in terms of dealing with first nations. His office spent two years, I think, in close consultation with the first nations to help define what they perceive as an appropriate accountability framework. It's helping us provide a basis for further consultations with them, recognizing that the real focuses should not be necessarily just on the funding agreement. As the Auditor General has just said, the funding agreement is not going to solve the problems - it's capacity-building and accountability.
The Acting Chairman (Mr. Grose): Thank you.
Mr. Duncan, five minutes.
Mr. Duncan: Just to follow up on Mr. Crawford's comments, the department has spent an awful lot of money - capital moneys - lately on schools and other facilities. I am aware of communities where one school had served the native and non-native population, and there are now two schools, which now separates the two populations. The service availability from the two schools is less for each community than it could be under one school, with all the economies of teachers, and so on.
People in the community are questioned about this. This just became a steamroller kind of exercise, promoted by a band council that was in financial difficulty, and a big capital project was going to allow them to extricate themselves from short-term financial problems.
This is certainly the community perception. It had nothing to do with grassroots demand or need. Indeed the perception was that the standard in both communities suffered as a result.
.1640
All of this kind of activity wouldn't happen, to my mind, if we had a real value-for-money, service-delivery oriented type of accountability. Do you see a way to achieve that on capital spending prioritization?
Mr. Serson: Let me start, and then I'll turn to my colleagues. We are doing our work on schools based on a capital plan that runs three or four years into the future, so it's hard for me to believe that we would respond on a kind of an urgent basis unless there was a need, but we'd be prepared to look at the specific example.
I think you're right to raise the whole issue of economies of scale. We're going to continue to try to elevate the level of discussion with our first nations partners about the importance of economies of scale. The Royal Commission on Aboriginal Peoples has put that issue squarely on the table again, and I think we do have to do that.
We have been focusing more on auditing on the basis of results. Technically, I think that moves us closer to a value-for-money orientation, but I'll let one of my colleagues speak to that.
Mr. DiBartolo: Yes. It goes beyond auditing. Every first nation has to prepare and submit an annual audit. One of the observations the Auditor General made in his chapter is that one of the weaknesses of the current audit requirements is that they don't look at all of the assets or revenues of a given first nation or a given band. We've just this past year requested that first nations provide us with consolidated audits, showing all of the revenues they receive, so we're getting a much better picture of the financial situation of individual bands.
In addition to that, we're focusing a lot more on the information requirements - both the information requirements of first nations, to help them manage their programs, and also the information requirements that we as a department have, and that the minister has, in terms of ensuring accountability to Parliament. Our focus in that regard is much more on the results end.
The deputy mentioned in his opening remarks that we participated in a pilot on performance reporting this year, and we have just recently tabled our performance report. I think a lot of the indicators in there are very much closer to the results end of the spectrum than the detailed input transactional end that has traditionally being associated with government performance measurement.
Mr. Duncan: How is DIAND going to meet the Auditor General's recommendation for getting a handle on other revenues of first nations, in order to come up with a proper risk assessment prioritization of funding, particularly when the Indian Act changes that were floated in September actually move in the opposite direction?
Mr. DiBartolo: As I just stated, Mr. Duncan, we changed our audit requirements for the fiscal year 1995-96 and are now requiring all first nations to provide us with consolidated audits that reflect not only the revenues they receive from government, but own-source revenues and revenues from other parties. That will put us in a position where we get a much better handle on what the total revenues of individual first nations are, the total revenues compared to debt, and help us better assess risk in individual situation.
Mr. Duncan: Are you saying that won't change if that portion of the Indian Act is changed, as is being proposed?
Mr. DiBartolo: There is nothing being envisaged that will change that.
The Acting Chairman (Mr. Grose): Thank you, Mr. Duncan.
Next up is Mr. Hubbard.
Mr. Hubbard (Miramichi): Thank you, Mr. Chairman.
It appears that, as Mr. Crawford and others, and I know our own constituents...there is a growing concern across the country that a lot of money is being spent very loosely and isn't being properly accounted for.
We hear today that about three quarters of your expenditures are not being audited through the AG. Is that correct, in terms of your $4 billion?
.1645
Mr. Serson: I think what the Auditor General was saying is that he audits -
Mr. Hubbard: Is it $3 billion that goes to the 600 communities that he has no observations on? Is that correct?
Mr. Desautels: May I try to answer that? We do audit 100% of the department's expenditures. When it comes to transfers to first nations, we actually have access to the information that is in the hands of the department to justify the transfer. So we audit the actual transfer from the department to the first nation. However, once the money reaches the first nation and the first nation uses that money for education or social services, we do not audit that part. There is a separate independent auditor to audit that.
Mr. Hubbard: Currently there are more than 600 different partnerships that you're associated with. It would appear that this would be a major problem. You're dealing with 600 groups, and every two years the groups change in terms of the leadership with their local elections. Does the department have a grading system or a system of saying that nation number 1 has a very good system of accountability whereas nation number 14 has a poor system and we have to try to work to improve that? Are there any records kept of how well or how poorly different first nations operate their account systems?
Mr. DiBartolo: In answer to the specific question, do we have a grading system, I wouldn't characterize it as a grading system. Essentially all of our transfers of funds to first nations are conditional transfers subject to terms and conditions. We have a compliance review role to ensure that the first nations are meeting those terms and conditions. The Auditor General has referred to the fact that there are a number of different types of funding arrangements, and as we -
Mr. Hubbard: I only have five minutes. Very briefly, do you know that a certain group do a good job whereas other groups - as we indicated before, some are fewer than 300 people and they need more help - don't have good administrators?
Mr. DiBartolo: Yes, we do, and we ensure that we do an assessment of their capability before we agree to move to the more flexible funding arrangements for them.
Mr. Austin: I think it's important to understand that all federal funds moving to a first nation are audited by a professional auditor every year. There is a professional auditor who gives an opinion such as the AG gives for the Government of Canada on how it's spent in relation to the terms and conditions. We receive all of these audits. That's what this chart is about.
Mr. Hubbard: I know that. But do you identify...as we pointed out, some have good administrators and others have poor administrators. There must be certain groups you have to work with year after year to ensure they have good administration.
In terms of socio-economics, on page 33-7 you talk about average individual incomes. I'm a bit concerned about that chart put out by your department, because when I look at it and I compare some of the other statistics we get in our office, it shows that per capita income is $10,141, which compares to $19,000 for the average Canadian. With that, do you build in such factors as taxation, health and dental care, and transportation? Is that built into the $10,000 or taken out of the $19,000? What are you comparing here in terms of this chart? From what I know from back home, I wonder if our native people are being treated properly in terms of that $10,000 per capita income. Do you add in these other factors that would benefit them in terms of this $10,000, or are they left out?
Mr. Austin: I think the table you're referring to is in the Auditor General's report, and it's just straight average income.
Mr. Hubbard: So this would not include income tax or income tax taken off. It's put out by your department, isn't it?
Mr. DiBartolo: It would be gross numbers, but I can confirm that and get back to you.
Mr. Hubbard: Comparing this, Mr. Chairman, with the Fraser Institute studies in terms of taxation, it seems as if we should look at that table further. It has a real significance. Thank you.
The Acting Chairman (Mr. Grose): Mrs. Barnes, five minutes.
.1650
Mrs. Barnes (London West): I'd like to follow up some of these questions. Perhaps we could just go to our charts here, because I'd like to point out the ``Audit opinions'' chart. What was encouraging to me over the last decade is the change from 49% unqualified audit opinion -
A voice: Which chart are you on?
Mrs. Barnes: The one entitled ``Audit opinions''. It would be the fourth chart in. I just want to verify what you're telling me on this chart.
From what I see, in the last decade, 1983-84 to 1994-95, recorded in your chart, you went from 49% in the ``unqualified audit opinion'', which in my book, and I think in everybody's book, is the good audit - and I take it this is the total number of bands you're talking about - to a 77.6% unqualified... Qualified went down to 18.2%. The denial, I take it, is the denial of doing any type of statement. It's not a denial of opinion; it's a denial of even participating in the process, or is there a mixture there?
Mr. Austin: There probably would still be a set of financial statements, but the auditor is unable to attest to the accuracy of it.
Mrs. Barnes: All right. This audit opinion is basically on financial statements that have to do with the expenditures of the dollars into the system. Correct?
Mr. Austin: That's correct, yes.
Mrs. Barnes: I was going to say that this is extremely encouraging. I think for anybody to have that type of leap over a decade would be good.
My question now revolves around the scope of the audit you're asking for in the next year. Did I understand you correctly that it will be to an asset base as well as a financial statement?
Mr. DiBartolo: Yes.
Mrs. Barnes: Okay.
Mr. DiBartolo: We have asked for consolidated audits that look at other revenues.
Mrs. Barnes: It's something more than the average Canadian provides to the government every year.
Mr. DiBartolo: Exactly.
Mrs. Barnes: All of us just report an income statement, in essence, or a business would pay taxes on an income. Here, we're asking for the total picture, which is something very unusual for this scenario. I think that's much more of an increase than is demanded of the average household in Canada.
What I'm concerned with, given that, is what are you doing, or what are your expectations of how complex that new system will become and whether you're expecting your unqualified opinions to deteriorate?
The other part of my question is, how did you manage the uphill battle here. It's obviously a good increase. An unqualified opinion, to me, shows the strength of the spending.
Mr. DiBartolo: In terms of the anticipated impact of the requirement for consolidated audits on qualification of audits, I think it's too early to tell. As I say, we introduced that requirement for the 1995-96 fiscal year, so audits are coming in now. We've gotten indications that most first nations are able to meet the requirement for consolidated audits in a timely fashion.
In terms of improvement in audit opinions on reserve, I think that's part of a reflection more of our overall approach to financial management. When we have situations where we get denied audits, where we have a first nation in financial difficulty, where there are strong indications of financial problems, we work out with the first nation remedial management plans that address those financial problems, whatever they may be. They can range anywhere from a plan that the first nation administers itself, with monitoring and support from our regional offices in our department, right through to the extreme situations, where we actually appoint a third party to manage the affairs of the community. There are very few in the latter category. Most of the remedial management plans are self-administered by the first nations themselves.
This really reflects, I think, a concerted effort on our part, working with first nations, just to improve the overall financial management on reserve.
Mrs. Barnes: I would hope that that arrow doesn't start going the other way after we switch the system, because that's been a good improvement.
I want to go to your last chart, because I frankly don't understand it. How do we go from 9.2%, with the cumulative deficit greater than 8%, up to 20%? What's happening here? There must be a story behind these numbers that needs to be told.
Mr. DiBartolo: I think if you look at this chart in relation to the second one that shows percentage of audits received, there's a pretty close relationship there. A large part of the explanation for that increase is the information we are actually getting over that period of time...in terms of not having all the audited statements in 1983-84 that would give us an indication of what the total debt really was.
.1655
Mrs. Barnes: It's more a question of how it is we end up with certain bands running deficits all the time with the funds we're providing.
Mr. DiBartolo: It's largely a reflection of their borrowing in the open market.
Mrs. Barnes: Is there no element of mismanagement in there?
Mr. Serson: We're all capable of mismanaging, and in some cases it could be that. The other thing we have to be cognizant of is in that chart. The support they're getting from us -
Mrs. Barnes: That chart is not going to be reflected in the transcript so perhaps you can explain it.
Mr. Serson: It's just the reflection of the decline in growth rates in our budget, moving from 12% in 1989-90 down to 3% this year and 2% next year. That is a substantial adjustment to go through for any community, be it a first nation or a municipality. Sometimes borrowing is necessary as part of that adjustment, so we can see that factored in.
Mrs. Barnes: Thank you.
The Acting Chairman (Mr. Grose): The next questioner is Mr. Paradis.
Mr. Paradis (Brome - Missisquoi): Thank you very much, Mr. Chairman.
My first question is
[Translation]
for the Auditor General. Let us look at exhibit 33.1 on page 33-7 of the French version. I would like to come back to the question raised earlier about the average individual income of $10,141. Earlier, the Deputy Minister was asked what that amount of $10,141 represented. I will put the question again. What does that amount represent?
The next exhibit, on the following page, shows that the Department of Indian Affairs and Northern Development Canada has a budget of about $4.5 billion and that the other departments have a budget of $2 billion. Therefore, a total of $6.5 billion is directed to reserves, to Aboriginals.
Paragraph 33-17 says that there are about 620,000 Aboriginals and a budget of $6.2 billion. That means that about $10,000 is spent on each person. When the Canadian government, as a whole spends $10,000 per Aboriginal person, is that the average individual income of $10,000 in this exhibit or another $10,000?
There must be Aboriginals that work off-reserve, everywhere. So some will have an income besides social assistance or unemployment insurance. I'm trying to break this down. Does the amount of $10,000 in exhibit 33.1 represent an income from regular economic activities and should the $10,000 from the federal government's programs be added to that?
Mr. Desautels: Mr. Chairman, I would like Mr. Wilson to answer that question, please.
[English]
Mr. Grant Wilson (Principal, Audit Operations, Office of the Auditor General of Canada): Thank you, Mr. Chairman.
First of all, the information on exhibit 33.1 is provided by the department. The point I did want to raise, though, was that the average individual income is for the registered Indian population, both on reserve and off reserve. It includes registered Indians who are not living on the reserve but who are working in the regular community. In fact, those numbers are going to be a culmination of a series of inputs. I believe they are brought together through Statistics Canada, but the department could probably answer that better.
[Translation]
Mr. Paradis: I would like to put my question to the Deputy Minister or to another department official. So that we understand each other,
[English]
my question is on the $10,141 figure at exhibit 33.1. I'd like to know what that is including. If we look at all the spending of the federal government the other way, we spent something like $6.2 billion a year with a population of 620,000.
.1700
Mr. Serson: May I just correct that first, Mr. Paradis. If you look at those numbers, the $4.5 billion in DIAND includes our northern affairs program as well. So, yes, there are some expenditures north of 60 degrees, and first nations members are part of the population up there, but we have to be careful about that.
Those programs in the other quarter of the pie go to all aboriginal people. You're talking about a population of about one million, so you can't do the simple division. Most of our Indian Affairs programming goes to the 337,000 people who are living on reserve, but even here there are some exceptions, like post-secondary education. You do not have to be a resident on reserve to receive post-secondary education funding.
As far as the $10,000 is concerned, perhaps we could write back to the committee on this, Mr. Chairman. For the registered Indian population of 574,000, I believe you're talking about the total income, which would be their income from employment, social assistance, unemployment insurance - all sources.
Mr. DiBartolo: On and off reserve.
Mr. Serson: But you can't do the simple division with the budget that way.
The Acting Chairman (Mr. Grose): Perhaps I might be able to make an interjection here. The federal government makes expenditures on behalf of all of its citizens, and I'm wondering if this $10,000 per aboriginal person is really a fair way of looking at things. What is it for the rest of the citizens of the country? This is just a thought, and I don't expect an answer.
Mr. Serson: I would like to make one comment, Mr. Chairman, since you've given me the opening. I think that is a fair point. What you have to compare our expenditures to are the gross expenditures by provinces and municipalities for the same basket of programs and services. When you look at that comparison I'm not sure where the balance would be.
The Acting Chairman (Mr. Grose): It might be interesting to look at, though. Would you be able to give us a brief report on that of less than two pages?
Mr. Serson: We can see what we can do.
The Acting Chairman (Mr. Grose): Thank you.
Mr. Rocheleau.
[Translation]
Mr. Rocheleau: In your answer to the Auditor General regarding the accountability expected from First Nations, you said that First Nations will have to assess their management and accountability systems.
Because this is about an assessment, are we to understand that there will be an assessment grid? If there is an assessment grid, who will design it? The department or the First Nations? Are we to also understand that First Nations will assess themselves, with or without a grid?
[English]
Mr. Austin: First of all, in relation to audits, as we mentioned before, we require audits on an annual basis. Those are done to standards set by the professional accounting bodies, such as the Canadian Institute of Chartered Accountants.
All the audits we receive, sir, are done to these standards that are open to all industries, all governments. Actually, they use the public sector accounting standards.
.1705
[Translation]
Mr. Rocheleau: I'm not talking about auditing, I'm talking about assessment. That is on page 33-24, at the bottom of the page on the right hand side. It says:
- The Department has instituted numerous actions to strengthen accountability, including:
If there is an assessment, will there be an assessment grid? If so, who will design it? This does not have to do with a subsequent audit of financial statements, etc. That is what you are talking about.
[English]
Mr. Austin: We have built, in relation to first nations, a fairly complex assessment grid that deals with a number of different functions. I can leave a copy of it with you. That will be done by each first nation, often with a consultant, sometimes with the department.
[Translation]
Mr. Rocheleau: Is the grid developed by each of the First Nations or by the department?
[English]
Mr. Austin: No, the grid is actually done by us, sir. As I mentioned before, it looks at human resources, financial management and these sorts of things. It's quite a lengthy grid that looks at policy, planning, control and review functions. They look at the capacity they have for certain areas, and if that is found to be not up to snuff, a development plan is produced to try to increase that capacity at the community level.
It's quite a thorough and comprehensive evaluation or assessment tool that has been developed and that goes through a number of different administrative functions.
[Translation]
Mr. Rocheleau: Has this grid already been provided to the clerk of the committee?
[English]
Mr. Austin: No, it hasn't, but I'd be very glad to leave a copy of it.
[Translation]
Mr. Rocheleau: Could we please have a copy?
[English]
Mr. Austin: I don't know if I have a copy of it in French, but I have one in English and I'll try to get one in French.
The Acting Chairman (Mr. Grose): Mr. Rocheleau, you have one minute, if you have another question.
[Translation]
Mr. Rocheleau: Earlier on, you said that the questions were very relevant and that you were willing to co-operate and that everything was fine. But practically speaking, what do you intend to do to answer the questions raised by the Auditor General under point 33.48?
You said that you agree and that the Auditor General has done his work well and described the situation accurately, but what do you intend to change in the department's operations to meet the watchdog's expectations, the Auditor General's expectations?
[English]
Mr. Serson: My colleagues may want to add something, Mr. Rocheleau, but we are actively engaged in this discussion with our first nations partners about who is responsible for what in terms of performance. In fact Mr. DiBartolo has opened up the whole area of whether or not, at the same time that they have accountabilities to us for the use of government funds, we have accountabilities to them in terms of sharing the information we receive from them. So this whole issue of roles and responsibilities is very much on the table.
We are moving to the question of results. It's very early for us, but we have started to talk to them about whether or not we can change the nature of the data we collect. Whereas we now require a great deal of data, we could try to ease the burden on first nations by identifying 12 to 15 indicators of results on which we could obtain data to give us a sense that the funds are being successfully used for the purposes for which they were intended.
We're looking at all of those questions as we put these arrangements in place and in our overall relationship with first nations.
Mr. DiBartolo: I would say something in addition to that.
The Auditor General noted specific shortcomings in our existing funding arrangements. We had to recognize that a number of our current dealings with first nations are based on those arrangements, and we've undertaken a number of specific initiatives to try to address the shortcomings raised by the Auditor General.
We're increasing our focus on compliance. We've set up compliance units in each of the regions. We've increased focus on assessments before we get into the more flexible arrangements. Again, we have an action plan for all of those items.
.1710
The Acting Chairman (Mr. Grose): Thank you.
I'd like to advise everyone that I've been told there's going to be a 15-minute bell at about5:15 p.m., so govern yourselves accordingly.
I have Mr. Silye, Mr. Paradis and Mr. Duncan. We're obviously not going to get everyone in. If you want to shorten your questions, fine.
Mr. Silye: My questions relate to accountability. I think it's very important.
As for the chart you've provided on the audit opinions, on the one hand Ms Barnes says it's good news and it's encouraging, but I say it's bad news. If you look at what numbers those dollars represent, it means about 23%, which represents close to $1 billion, is questionable on how it was spent. I don't know what the qualified statements and denials are, but that represents a lot of money.
My colleague, who is our aboriginal affairs critic, says to me that a major complaint on the reserves is the money doesn't get to the people for whom it's intended. Maybe this shows there is a $1 billion problem in your department with respect to accountability and getting the money there.
We think we're supplying sufficient funds, but if it doesn't get there, what is the department going to do, other than taking the next step and having the audits you receive verified? It would be another check or control on audited statements. Every corporation gets audited statements, but sometimes you do another audit on top of that to account for that $1 billion.
The second thing is this. As our party's critic for revenue and customs, I've always been concerned about smuggling, and I haven't known how to approach it. We all know the underground economy is fueled by people who bring things across the borders, and some of the weak areas of course are areas where we have reserves that are close to the border or that share lands with the United States, such as Akwesasne.
I've talked to a few people, and they have said to me that the band councils who run Akwesasne, for instance, don't like the rumours. They don't like the reports of smuggling. How can you help them reduce that and police themselves? This will tie in with my point on accountability.
Perhaps, if they need help, it would be good if they were able to tell their people there that if smuggling is at a certain level, their funding will be reduced.
In other words, if you see that this money isn't being utilized and the results aren't there - and buildings shouldn't be torn down after four or five years - reduce the amount of funding. Threaten to take the money away. Tell them their funding will be reduced by that amount unless they show that this money is being distributed properly.
That's one of my suggestions for accountability. What does the department think of that?
Mr. Serson: Let me deal with the smuggling issue first of all.
Smuggling as an issue is a responsibility of the Department of the Solicitor General; it's not our responsibility. But what we're trying to do in Mohawk communities is work through a round table to try to ensure that we're providing the assistance we can with economic development initiatives. This will hopefully mean there will be less incentive to use illegal means to gain a living and more opportunities for genuine economic development and real wages. That's the effort we're making in that community.
Bill, do you want to deal with this question of the audit?
This is not a reflection of a dollar amount, Mr. Silye. This is a reflection of number of bands, percentage of bands.
Mr. Austin: I don't have the dollar equivalent. The important thing to note, though, is that where we find a qualification or a denial of opinion or a serious debt problem, there is a remedial management plan in place. The degree of intervention that Mr. DiBartolo was mentioning a few moments ago - the appropriate degree of intervention - is called upon.
So it's not as if these things are not addressed in some measure.
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Mr. Silye: Maybe the Auditor General will want to comment on further audits.
Mr. Desautels: Mr. Chairman, I would like to draw the committee's attention to what we said in our chapter, particularly in paragraphs 33.54, 33.55 and even 33.56, on some of the limitations of the financial statements as accountability instruments. I think we're quite happy if there is that kind of reporting and that indeed a high percentage are unqualified. On the other hand, as we say in 33.54, these are strictly financial statements that account for moneys going in and coming out, but they don't reflect the program outputs per se and the results achieved with the spending, which is what we're trying to encourage government departments generally to do. We should not think that while these are quite valuable they really resolve all the accountability concerns we may have vis-à-vis those expenditures.
The Acting Chairman (Mr. Grose): Thank you. Mr. Silye, you've run out of field.
Mr. Paradis.
[Translation]
Mr. Paradis: First I would like to remind our colleagues that any expenditure over $100,000 is published in the Public Accounts of Canada.
For the first time, I decided to take a quick look at all government expenditures over $100,000. The first impression, when one has read these accounts for about twelve hours, is that approximately half of the pages deal with the Department of Indian Affairs and Northern Development Canada and with subsidies or contributions to Aboriginal peoples.
On the other hand, what is reassuring is that much of that money is provided directly to bands or groups which, in certain cases, should make our audit or review easier.
My question is for the Deputy Minister. If one takes an overall look at what is happening with Aboriginals and the Department of Indian Affairs and Northern Development Canada... I'm following up on Mr. Silye's question; he said earlier that he had the impression that the money wasn't reaching the real recipients. It seems that the money was getting blocked somewhere.
When one drives across a reserve and sees the people, one says to oneself: "My God, they're living in shacks; this really is not good." How is it that, despite the amount of money that the government is spending to help Aboriginals, we still have the impression that this money is not reaching the true recipients? What are you doing to assure the Canadian public that the $6 billion that is being spent is reaching the right recipients?
[English]
Mr. Serson: If you wish, Mr. Paradis, we could come in here and talk about results. Mr. Duncan talks about some individual case where he has concerns. But the fact is that you can see the results in terms of pupils, education, social assistance and social services delivered.
There are no massive complaints across the country from first nations communities that citizens are not being served. We do not hear that. We hear the odd instance where there are accusations of misappropriation of funds. Where we hear those, we turn them over to the appropriate authority.
We can come back. We've said several times that the minister is among the first to publish his statement of results against plans. We can do that because we are achieving those results with the money we're given. We can go into a good deal of detail on what we're accomplishing, and what first nations are accomplishing, with that money.
Mr. DiBartolo: I would only add that most of the funds, and certainly all the grants and contribution funds that we provide, are provided either to tribal councils or to elected band councils. We said at the outset that in terms of the accountability framework, we're working with first nations to ensure there's transparency and disclosure by the councils to their communities. Like any level of municipal government, they will be held accountable to their people for ensuring that the funds they get are provided to community members for the purposes intended.
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Mr. Paradis: Merci, monsieur le président.
The Acting Chairman (Mr. Grose): I'm afraid we've run out of time.
Mr. Silye: Can we please take five more minutes?
The Acting Chairman (Mr. Grose): Mr. Duncan, what if we give you two minutes?
Mr. Duncan: Okay.
First of all, there are a lot more complaints out there than what is being portrayed here. We've got 69 out of 70 bands in the province of Saskatchewan, with a membership in the hundreds if not thousands, that are carefully protected because of their concerns about being threatened.
There is no independent body that these people calling for accountability can go to, other than to the minister or the department, and then these things can reverberate on them.
One of the basic problems we have is that the band membership is left out and a lot of this documentation does not become public. They have to ask for it through their band council, and they're just not getting satisfaction. When they go to the minister, they are told to go to the band council.
With this graph that everyone has been talking about, there is another thing happening here. This line went up at the same time as the flexibility of the funding arrangements was made more flexible, to the point where it's so flexible that we now have circumstances where allegations of fraud won't even be pursued by people in commercial crime. They can basically do anything they want with that money, and there's nothing an accountant can find wrong when you're basically allowed to do whatever you want. This is a bottom line complaint. It goes right to the root of what the Auditor General is talking about.
We are hearing that there is no problem in DIAND. The Auditor General is still saying there is a problem and the people at the band level are saying there is a problem. And there is a problem. We really need to break this logjam. It cannot go on. We are going to be sitting here a year from now with the same set of circumstances unless this is treated seriously.
The Acting Chairman (Mr. Grose): Thank you, Mr. Duncan.
I would like a very brief answer and then a summation from Mr. Desautels.
Mr. Serson: My brief answer would be this, Mr. Chairman. I mentioned earlier that we are committed to working with our first nations partners to achieve transparency, disclosure and redress. Those are the issues of which Mr. Duncan is speaking. They are the things that need to happen in first nations communities, and we are working with them in the spirit of partnership and in the spirit of self-government to encourage them to make sure those elements are in place in first nations communities so that the kind of issues Mr. Duncan raises are dealt with.
The Acting Chairman (Mr. Grose): Thank you, Mr. Serson.
Mr. Desautels, if you would, please.
Mr. Desautels: Mr. Chairman, very quickly, we have been doing a lot of work with the department and with first nations on behalf of Parliament over the last few years. I think we've developed quite a good understanding of the issues and the challenges we're all facing for these particular programs. Therefore, I would like to make sure the members of this committee are under no illusion that these are problems easily resolved and that DIAND will be successful in resolving them within the timeframe they've set out.
I believe it's a real challenge. It's a tough job ahead for the department. They seem to agree with our concerns, and I'm very happy about that. I think they will require a lot of support to pull this off and they will also need, in our view, to carry out a lot of consultation with the first nations individually in order that this be carried out as a consensus of all first nations. I think the members should be under no illusion. This is not an easy job and it will take some time to pull it off.
The Acting Chairman (Mr. Grose): Thank you.
I'd like to thank the Auditor General and the witnesses. It's interesting looking at your full faces, instead of in profile.
I'd like to thank my colleagues for their courtesy and civility. Maybe we'll do it again sometime.
We're adjourned until 11 a.m. Thursday, December 12.